Credit: Tim Umphreys via Unsplash
Dentsu, with another round of restructuring seeking improved profitability, is hiring talent within Japan where business is growing and cutting headcount among its “sluggish” international businesses.
The company has already identified initiatives that will bring about 90% of an expected JPY50 billion cost reductions.
Underperforming markets and entities have also been identified. This includes acquisitions which have not met forecasts.
Business for the global advertising group is brighter in the home base of Japan, up 5.5% in the March quarter and better than expected, with the organic growth rate now positive for eight consecutive quarters.
However, the international business is stubbornly negative. In the March quarter, organic growth in the Americas fell (5.1)%, EMEA (0.9)% and APAC (4.6)%.
In Australia the media side of the operation kept the local business broadly flat, with the CXM (customer experience management) side challenged.
And dentsu sees additional risk in the international business, with the macro environment “shrouded” in uncertainty.
Despite that the company hasn’t changed its full year outlook for just 1% growth.
“At this stage, we have not seen a significant reduction in our clients' appetite to invest in marketing, despite the prevailing concerns about the global economic outlook, including policy changes in the United States,” CEO Hiroshi Igarashi told analysts in a briefing.
“We will continue to closely monitor the impact on our business and will promptly disclose any significant effects on our business and results.”
The company has managed to keep net revenue flat. An increase in net revenue in Japan was offset by a fall in international regions.
Overall staff costs fell by JPY3.7 billion, despite hiring in Japan, because of headcount cuts outside Japan.
Dentsu said the net pitch win rate is growing steadily in the international business.
The current pipeline is 85% offensive but the creative area has seen a decrease in new business. In Japan, the win rate is steady.
CFO Shigeki Endo told analysts the structural reform, including reevaluating underperforming businesses, is not just a simple cost reduction initiative.
“We are evaluating each and every business within the group, as well as each organisation,” Endo said.
“So, the ones that need to be discarded need to be discarded. And the ones that are to be sustained, how can we make it leaner? We are trying to review that, re-evaluate that individually to create an efficient organisation.
“The balance between revenue and cost will have to be watched … we will look at the profitability to achieve the right balance. That is what we're trying to pursue.
“Therefore, toward December and … into FY26, but mainly in the second half of this fiscal year … the effect of cost investment will start to show gradually.”
Part of the problem with the “sluggish” performance by the international business is that past aggressive M&A deals “have not gone very well”.
These businesses that are “unfortunately running up losses or underperforming” have been identified.
Endo said dentsu now has new M&A guidelines that we adhere to.
Giulio Malegori, global chief operating office, said the development work is a balance between short-term objectives and the long-term.
“Overall, we are working intensively in accelerating our product offering in some specific areas to reflect the strategy of having more media centricity in our delivery of business outcome to our clients,” he told the analysts.
“When we look at the media, we are really focusing on accelerating the capabilities that are crucial at the intersection with data in the audience science area and the analytics, we are also accelerating our development in the retail media.
“When we look at creative, we are recognised by external stakeholders as having the most evolved content supply chain offer, and that will be a super-important capability in the near future.
“We are carefully rebalancing the approach between global and local. And within that, especially media, the US will be central for the development of the global business.”
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